Saturday, August 11, 2007

“Nobody runs faster than a sophistcated banker who gets scared and the financial community is scared”

Mort Zuckerman: Credit Mess Measured

"When you have 5% or less equity in these things it is based on the assumption that home prices are going to continue to go up. That just simply doesn't exist. It's another bubble. A real estate bubble that created a financial bubble or the other way around. These bubbles are going to collapse and people are going to lose money and the next time they'll be a lot more cautious" "It's only when the tide goes out that you are going find out who is wearing a bathing suit and we don't know what the real exposures are at this stage of the game" "They don't know the value of the derivatives, they don't know the value of the paper, and they don't know the value of the assets behind the paper"

Posted by lvmreader @ 02:25 PM (460 views)
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5 thoughts on ““Nobody runs faster than a sophistcated banker who gets scared and the financial community is scared”

  • This man is on the money

    This incredibly smart man has said now what I have been saying since Jan 2006.

    “It could go very badly, because nobody knows how deep the hole is”

    http://video.msn.com/v/us/msnbc.htm?g=8a84540b-5605-40c4-9a2c-58f0fdcd04de&f=00&fg=copy

    “It’s only when the tide goes out that you are going find out who is wearing a bathing suit and we don’t know what the real exposures are at this stage of the game”

    “Nobody runs faster than a sophistcated banker who gets scared and the financial community is scared”

    “They don’t know the value of the derivatives, they don’t know the value of the paper, and they don’t know the value of the assets behind the paper”

    “Until we find out how deep that hole is we just don’t know and that’s why the markets are frozen”

    “When you have 5% or less equity in these things it is based on the assumption that home prices are going to continue to go up. That just simply doesn’t exist. It’s another bubble. A real estate bubble that created a financial bubble or the other way around. These bubbles are going to collapse and people are going to lose money and the next time they’ll be a lot more cautious”

    “The market will teach some lessons to some people here….The market always in the end teaches people how to invest or how not to invest, or at least teaches people who are still going to stay solvent”

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  • Pure gold.

    I have seen some financial reporters saying “all we need here is clarity.”

    That is precisely the problem. Nobody knows what they are worth. Not even the quant “geniuses” who wrote them. Some people dont even know their real positions and few know the convoluted path to their real counterparty and their real credit exposures.

    Let me say this again. The problem here is that the system is a bust. You can pump all the fuel you want to into the car if it is stalling for a lack of fuel. If the wiring in the engine is wrong then its time to pull over to the side of the road and get the engine replaced before you go into a “high speed shut down”.

    Or is this what should have occurred a short while ago and we are going into a spin at high speed already. I have my theory. But however bad it feels to stop and replace the engine, its always the best route.

    Shortly someone might aswell pick a valuation. If i had my money in a fund that had been “frozen” I would at least start by saying its worth my capital and asking for it back (little good that might do me).

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  • On another point in this commentary .. which again, is very slick.

    It is important that the markets are ALLOWED to teach people how to invest. “bailing” the market out does not allow the market to teach people how to invest. It perpetuates stupid activity.

    I think, having read some papers this week, that this point of few is becoming more readily accepted. …. fortunately.

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  • Another important point on this brilliant commentary ……

    The market MUST be allowed to teach people these lessons. If a “bailout” occurs .. however well meaning, then the lesson is not learned.

    Unfortunately bailouts have occurred in the past some of the questions that are being raised now should have been sorted out then.

    I am thinking particularly of the LTCM incident in 1998. This event appeared to be “well and smoothly managed”, most people have never heard of it, but it meant people walked away with all kinds of lessons. The wrong ones.

    The lesson i took away was that to apply mathematical models with certain assumptions which are “rough” at best and then turning around and starting to build a heavy skyscraper on the foundation of those models is a ‘ill advised’.

    This time of course we are in a vice as well. The end borrower or consumer is defaulting at one end and the financial system is finding out it is faulty at the apex. This “could go badly.”

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  • Looks like its hitting the fan…

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